Amazon could see expenses weighing on earnings

SAN FRANCISCO (MarketWatch) — When Amazon.com Inc. reports its fiscal second-quarter results after the close of trading Thursday, it will be at a time of growth and challenges for the world’s top online retailer.

Analysts surveyed by FactSet Research estimate Amazon
AMZN, +0.17%
will earn a penny a share on $12.9 billion in revenue for the quarter, compared with earnings of 41 cents a share on sales of $9.9 billion in the same period a year ago.

The one thing Amazon will likely not mention on the earnings call is the number of Kindle tablet devices it sold during the quarter. While Amazon often touts the Kindle as its top-selling item, it has never released actual sales figures for the device.

Chad Bartley, an analyst with Pacific Crest Securities, said in a research note that channel check also “point to a delay in new e-readers, [with a] slight decline in Kindle Fire demand.” As such Bartley said he expects Amazon’s results to be solid, but could fall below current consensus estimates.

In addition to net income, one of the key metrics analysts will key in on with Amazon will be the company’s operating profit: the company has estimated that it could post an operating loss of as much as $260 million, or earnings of up to $40 million. Daniel Kurnos, of Benchmark Capital, said in a research note that such a range “suggests heavy investment spending could result in little to no profit [in the] near-term.”

Kurnos went on to say that in addition to higher expenses for building out distribution centers and enhancing services, the company “may be facing further margin pressure due to the success of its Amazon Prime offering.” With Amazon Prime, customers pay $79 a year for free two-day shipping on anything purchased through Amazon.

Kurnos, who has a buy rating and $260-a-share price target on Amazon’s stock, said that with its second-quarter report, “Amazon faces its most difficult comparisons of the year across nearly all of its categories, in addition to ongoing macroeconomic headwinds.”

Reuters

Graphics of the Amazon Kindle tablets are seen at a news conference during the launch of Amazon's tablets in New York, in this September 28, 2011 file photo.

Needham & Co. analyst Kerry Rice agreed that Amazon could see some pressure on its earnings due to infrastructure costs. Rice who has a hold rating but no price target on Amazon’s stock, said the company could see its outlook hampered as a result of building distribution centers in states where Amazon has reached a settlement regarding the collection of sales taxes.

“We estimate that Amazon has agreed or proposed the building of at least 15 to 20 distribution centers at the cost of at least $50 million per center,” Rice said, in a research note, adding that the increase in capital expenditures this year should “keep pressure on [Amazon’s] operating income.”

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